By 2015, it is estimated that one tenth of the U.S. population will suffer from diabetes. Islet transplantation has great potential for the treatment o diabetes, but must first overcome issues associated with islet survival, function and immunorejection. Combining bioengineering and islet biology has great potential for overcoming these challenges. We have reported that human bone marrow (BM), either in vitro or in vivo, significantly improves human islet function and survival, but the mechanisms underlying this beneficial effect are largely unknown. We have preliminary data, that BM facilitates human islet survival and function in vitro by initiating revascularization and stimulating human islet regeneration. To address immunorejection of human islets, we propose a bioengineering approach of encapsulation of human islet/BM co- cultures and we will test this in vivo using mice engrafted with a functional human immune system (humanized mice). We hypothesize that co-encapsulated BM plus islets creates a favorable microenvironment via which BM paracrine activity facilitates revascularization of human islets, enhances cell self regeneration and prevents immunorejection. We will investigate mechanisms of how BM sustains human islet function/survival and prevents human immunorejection in humanized mice and the benefits of using nanoparticles with selected cytokines incorporated for local release to the islets. To understand how human BM facilities human islet survival and function within an encapsulated microenvironment, we will (1) evaluate revascularization and -cell regeneration that occurs within a 3D construction of the encapsulated islet and BM tissues; (2) evaluate the ability of encapsulated islets plus BM to overcome human immunorejection and restore glucose homeostasis in diabetic humanized mice, and determine whether nanoparticles carrying cytokines in a semi-permeable hydrogel capsule facilitate support of encapsulated functional islets by recruiting progenitor cells, and (3) identify the mechanisms by which BM enhances human islet survival and function in an encapsulated microenvironment by identifying the effect of BM paracrine Platelet-derived growth factor (PDGF or other factors) and Mir-RNA 24-2 to modulate PDGF signaling pathways on islet survival and function. Our long term goal is to identify the mechanism(s) by which encapsulated islets plus BM cells sustain islet function in vivo and prevent islet rejection in the absence of generalized immunosuppression for translation to the clinic.